International professional services organisation Ernst & Young is an integrated part of Sarawak’s fast-moving business world. Inside Investor sat down with Alexander Chin, Partner, and Michelle Au-Yong Swee Yin, Director of Ernst & Young in Sarawak, to learn more about the firm’s strategy to tap the sector’s huge growth potential.

Q: How big is Ernst & Young’s operation in Sarawak?

AC: Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, we have 152,000 people working in practices across 141 countries that are organised into four geographic areas. In Malaysia, Ernst & Young is one of the largest professional services firms in the country with 2,500 employees in 16 offices nationwide. In Sarawak, Ernst & Young has offices in Kuching, Miri, Bintulu and Sibu with more than 200 employees.

Q: What are the business fields Ernst & Young is focusing on in Sarawak?

AC: In Sarawak, our core services are assurance and tax, which have been and continue to be our focus. In assurance, we offer services in accounting compliance and reporting, auditing of financial statements, and fraud investigation and dispute services. Our tax advisory services cover a broad spectrum including but not limited to tax planning, crossborder advisory, customs and international trade, personal taxation and indirect taxation. Increasingly, we are expanding our advisory services where we have built a niche. We are able to pool and share resources with our main office in Kuala Lumpur, as well as leverage on our regional and global Ernst & Young networks. Ernst & Young operates as a globally integrated firm. We have in place a structure that enables us to mobilize our people quickly and allocate them to the right projects in the right place, at the right time. Through our industry-focused approach and worldwide reach, we are able to help our clients manage risk, improve performance and sustain the results, wherever they operate.

Q: Who are your main customers in the state, from which industries are they?

AC: In Sarawak, our main clients are private and public-listed companies involved in construction, plantation, timber, logistics, electronics, manufacturing and services, as well as government and government-linked entities. A number of our clients are also multinational companies.

Q: What would be your services for foreign investors coming to Sarawak to build up a business?

AC: With our integrated assurance, tax, transaction and advisory services, we are able to offer a “one-stop-shop” to investors, local or foreign, who are interested to set up their businesses here. Tax advisory services are critical, especially for foreign investors, as one of the most compelling reasons to invest here is the attractive tax incentives and import/export duties available. Our advisory services professionals have also assisted to conduct due diligence, feasibility studies and market research for some of these investors who have since established their presence in Sarawak.

Q: How would you assess the accounting standards of Sarawak companies against an international benchmark?

MA: All Malaysian companies will be able to adopt the new Malaysian Financial Reporting Standards (MFRS) that came into effect in January 2012. The MFRS is fully convergent with the International Financial Reporting Standards (IFRS). Those companies that comply with the new framework can make an explicit statement that they are fully compliant with IFRS, which is convenient for foreign investors as it makes Malaysian financial reporting comparable on the international scale. However, there are two groups of companies, called ‘transitioning entities’, that are exempted from compliance with the MFRS. One group which falls within the scope of MFRS 141 Agriculture such as plantations need to fair value their assets. The other group comprises property developers that have to report under a different standard with some revenue recognition differences. Companies not involved in these industries are supposed to report according to the MFRS from 2012 onwards. But the transitioning entities will have to comply with the MFRS starting from 2013.

Q: How far has the MFRS been implemented?

MA: Listed companies have been reporting in accordance with MFRS since the first quarter of 2012. However, even before the introduction of the MFRS, all the financial statements of listed companies were already very much aligned to international accounting standards. For companies that meet the criteria for being exempted from applying MFRS (usually private limited companies), they may opt to apply another set of accounting standards, Private Entity Reporting Standards that are presently in the process of being reviewed.

Q: What do Ernst & Young’s corporate social responsibility activities comprise in Sarawak?

AC: Ernst & Young’s business strategy is founded on engagement with our people, clients and communities to help them achieve their potential. As an organisation that embraces corporate responsibility, we think carefully about how to invest in society today to make sure there will be a business context where both we and society can thrive tomorrow and long into the future. With our global network of employees, one of the best ways we can contribute to this effort is through skill-based volunteering. Our corporate responsibility efforts are channelled into 3 key areas (we call them the 3Es) that are aligned with our business strategy and considered critical to improving and expanding market economies:-

In Sarawak, we are particularly committed to the area of Education as we believe there is a critical need to develop local talent. In this way, we not only help the people we employ improve themselves and achieve their full potential, we also contribute to the community in which we operate – in both the short and long terms.

Q: What are the issues with staff recruitment?

AC: Globalisation has led to strong competition for skilled labour, and the accounting industry has not been spared. The “Big 4” accounting firms, including Ernst & Young, have experienced high staff attrition and talent poaching. Malaysian professionals are sought after because they are highly skilled, adaptable and multi-lingual. In turn, our professionals are attracted to opportunities to work overseas. Whilst we feel it is a valuable experience for young talents to seek such opportunities abroad, it is key to attract these talents home and retain them, possibly through improved compensation packages. On the local front, all recruitment efforts are required to comply with the labour laws of Sarawak.

Q: Do you think the Asean Economic Community by 2015 will give your advisory services a healthy boost?

AC: The Asean Economic Community (AEC) aims to transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and a freer flow of capital. Areas of cooperation include human resources development, consultation on macroeconomic and financial policies, trade finance, enhanced infrastructure and communications including electronic transactions, promotion of regional sourcing and enhanced private sector involvement. These are all areas which Ernst & Young can provide advisory services for, and we certainly look forward to the opportunities that will arise from the AEC network. Indeed, in many ways, Ernst & Young in ASEAN mirrors the AEC. Globally and in ASEAN, we operate as an integrated, consistent organisation with a borderless approach in terms of our mindset, actions, structure and people. As such, we are able to provide our clients with faster responses and more tailored services from broader, more experienced teams with deeper industry knowledge.

Q: Do you see any obstacles in implementing the AEC by this year?

AC: There is no doubt that the countries in ASEAN are committed to the implementation of the AEC. Within the group, the integration process appears well underway. However, the Eurozone crisis is a cause of concern. Thus, strong leadership, vision, political will as well as strong mechanisms and institutions will be necessary in such challenging times.

Q: Does Ernst & Young have any plans to expand its business within Sarawak and/or Malaysia?

AC: Yes, we are constantly seeking new business opportunities. Our business model remains focused on delivering our core services to our clients and potential clients. We are excited about the new opportunities that are unique to Sarawak where we see good potential to offer our advisory services.

Q: How would you assess the Sarawak government’s strategy for growth when taking into account all the macroeconomic factors in the region?

AC: The state’s accelerated growth strategy, through the Sarawak Corridor of Renewable Energy (SCORE), the Government Transformation Programme and the Economic Transformation Programme, is aimed at ensuring the state remains competitive in the global market. With SCORE, Sarawak offers a unique advantage for investors looking for investment opportunities – large land bank with purpose-built industrial infrastructure, rich natural resources, geographical proximity to supply and market, and attractive tax incentives. Its major objective is to achieve the goals of accelerating the state’s economic growth and development as well as improving the quality of life for the people of Sarawak. This is to be achieved through the efforts and cooperation between the government, private sector and the people, and by tapping on Sarawak’s abundance of hydropower, a renewable energy source. The hydropower will allow the state to attract and develop energy-intensive industries into the state. In addition, Sarawak’s strategic location as a gateway to Asia and the ASEAN countries will also increase the competitiveness of the state to attract foreign investments.

Q: What role does Ernst & Young’s China Overseas Investment Network (COIN) play for Sarawak, or Malaysia in general?

AC: Ernst & Young’s China Overseas Investment Network (COIN) was set up mainly to cater to our mainland Chinese clients. COIN works hand-in-hand with our practice in China to offer a suite of services to help Chinese companies planning to expand or invest beyond their borders. It is also a point of reference for potential clients who wish to venture into China. COIN links Ernst & Young professionals around the globe, facilitates collaboration and provides consistent and coordinated services to our clients in China with overseas investments. Our Malaysian practice has a dedicated partner working closely with our Chinese colleagues to promote the business and investment opportunities available in Malaysia.

Q: Can you briefly explain the company’s and your personal background?

AC:Ernst & Young’s roots go back to the 19th century with our founders Arthur Young and Alwin C Ernst. Each founded his own accounting firm, and through a series of alliances, the firms were able to gain quick entry into the global marketplace with offices set up around the world to serve their international clients. In 1989, the firms they started combined to establish Ernst & Young. In 2002, Arthur Andersen Malaysia merged with Ernst & Young in Malaysia. In that same year, Hanafiah, Raslan & Mohamad, established in 1964 as the first Bumiputra accounting practice in Malaysia, became a member firm of Ernst & Young. Ernst & Young was one of the first foreign audit firms to establish itself in Sarawak. The firm opened its first office in Kuching, Sarawak in 1956. The rapid economic development in Malaysia since Independence and the impetus given to industrialisation have contributed to the growth of the firm in the state and country. On a personal note, I did my studies in the UK and worked there for a number of years before returning to my hometown, Kuching, in 1994 to join Ernst & Young. I have an audit background but have predominantly been involved in the advisory services since I joined Ernst & Young. I am currently the Partner responsible for overseeing the advisory services for Sarawak and Sabah.

International professional services organisation Ernst & Young is an integrated part of Sarawak’s fast-moving business world. Inside Investor sat down with Alexander Chin, Partner, and Michelle Au-Yong Swee Yin, Director of Ernst & Young in Sarawak, to learn more about the firm’s strategy to tap the sector’s huge growth potential.

Q: How big is Ernst & Young’s operation in Sarawak?

AC: Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, we have 152,000 people working in practices across 141 countries that are organised into four geographic areas. In Malaysia, Ernst & Young is one of the largest professional services firms in the country with 2,500 employees in 16 offices nationwide. In Sarawak, Ernst & Young has offices in Kuching, Miri, Bintulu and Sibu with more than 200 employees.

Q: What are the business fields Ernst & Young is focusing on in Sarawak?

AC: In Sarawak, our core services are assurance and tax, which have been and continue to be our focus. In assurance, we offer services in accounting compliance and reporting, auditing of financial statements, and fraud investigation and dispute services. Our tax advisory services cover a broad spectrum including but not limited to tax planning, crossborder advisory, customs and international trade, personal taxation and indirect taxation. Increasingly, we are expanding our advisory services where we have built a niche. We are able to pool and share resources with our main office in Kuala Lumpur, as well as leverage on our regional and global Ernst & Young networks. Ernst & Young operates as a globally integrated firm. We have in place a structure that enables us to mobilize our people quickly and allocate them to the right projects in the right place, at the right time. Through our industry-focused approach and worldwide reach, we are able to help our clients manage risk, improve performance and sustain the results, wherever they operate.

Q: Who are your main customers in the state, from which industries are they?

AC: In Sarawak, our main clients are private and public-listed companies involved in construction, plantation, timber, logistics, electronics, manufacturing and services, as well as government and government-linked entities. A number of our clients are also multinational companies.

Q: What would be your services for foreign investors coming to Sarawak to build up a business?

AC: With our integrated assurance, tax, transaction and advisory services, we are able to offer a “one-stop-shop” to investors, local or foreign, who are interested to set up their businesses here. Tax advisory services are critical, especially for foreign investors, as one of the most compelling reasons to invest here is the attractive tax incentives and import/export duties available. Our advisory services professionals have also assisted to conduct due diligence, feasibility studies and market research for some of these investors who have since established their presence in Sarawak.

Q: How would you assess the accounting standards of Sarawak companies against an international benchmark?

MA: All Malaysian companies will be able to adopt the new Malaysian Financial Reporting Standards (MFRS) that came into effect in January 2012. The MFRS is fully convergent with the International Financial Reporting Standards (IFRS). Those companies that comply with the new framework can make an explicit statement that they are fully compliant with IFRS, which is convenient for foreign investors as it makes Malaysian financial reporting comparable on the international scale. However, there are two groups of companies, called ‘transitioning entities’, that are exempted from compliance with the MFRS. One group which falls within the scope of MFRS 141 Agriculture such as plantations need to fair value their assets. The other group comprises property developers that have to report under a different standard with some revenue recognition differences. Companies not involved in these industries are supposed to report according to the MFRS from 2012 onwards. But the transitioning entities will have to comply with the MFRS starting from 2013.

Q: How far has the MFRS been implemented?

MA: Listed companies have been reporting in accordance with MFRS since the first quarter of 2012. However, even before the introduction of the MFRS, all the financial statements of listed companies were already very much aligned to international accounting standards. For companies that meet the criteria for being exempted from applying MFRS (usually private limited companies), they may opt to apply another set of accounting standards, Private Entity Reporting Standards that are presently in the process of being reviewed.

Q: What do Ernst & Young’s corporate social responsibility activities comprise in Sarawak?

AC: Ernst & Young’s business strategy is founded on engagement with our people, clients and communities to help them achieve their potential. As an organisation that embraces corporate responsibility, we think carefully about how to invest in society today to make sure there will be a business context where both we and society can thrive tomorrow and long into the future. With our global network of employees, one of the best ways we can contribute to this effort is through skill-based volunteering. Our corporate responsibility efforts are channelled into 3 key areas (we call them the 3Es) that are aligned with our business strategy and considered critical to improving and expanding market economies:-

In Sarawak, we are particularly committed to the area of Education as we believe there is a critical need to develop local talent. In this way, we not only help the people we employ improve themselves and achieve their full potential, we also contribute to the community in which we operate – in both the short and long terms.

Q: What are the issues with staff recruitment?

AC: Globalisation has led to strong competition for skilled labour, and the accounting industry has not been spared. The “Big 4” accounting firms, including Ernst & Young, have experienced high staff attrition and talent poaching. Malaysian professionals are sought after because they are highly skilled, adaptable and multi-lingual. In turn, our professionals are attracted to opportunities to work overseas. Whilst we feel it is a valuable experience for young talents to seek such opportunities abroad, it is key to attract these talents home and retain them, possibly through improved compensation packages. On the local front, all recruitment efforts are required to comply with the labour laws of Sarawak.

Q: Do you think the Asean Economic Community by 2015 will give your advisory services a healthy boost?

AC: The Asean Economic Community (AEC) aims to transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and a freer flow of capital. Areas of cooperation include human resources development, consultation on macroeconomic and financial policies, trade finance, enhanced infrastructure and communications including electronic transactions, promotion of regional sourcing and enhanced private sector involvement. These are all areas which Ernst & Young can provide advisory services for, and we certainly look forward to the opportunities that will arise from the AEC network. Indeed, in many ways, Ernst & Young in ASEAN mirrors the AEC. Globally and in ASEAN, we operate as an integrated, consistent organisation with a borderless approach in terms of our mindset, actions, structure and people. As such, we are able to provide our clients with faster responses and more tailored services from broader, more experienced teams with deeper industry knowledge.

Q: Do you see any obstacles in implementing the AEC by this year?

AC: There is no doubt that the countries in ASEAN are committed to the implementation of the AEC. Within the group, the integration process appears well underway. However, the Eurozone crisis is a cause of concern. Thus, strong leadership, vision, political will as well as strong mechanisms and institutions will be necessary in such challenging times.

Q: Does Ernst & Young have any plans to expand its business within Sarawak and/or Malaysia?

AC: Yes, we are constantly seeking new business opportunities. Our business model remains focused on delivering our core services to our clients and potential clients. We are excited about the new opportunities that are unique to Sarawak where we see good potential to offer our advisory services.

Q: How would you assess the Sarawak government’s strategy for growth when taking into account all the macroeconomic factors in the region?

AC: The state’s accelerated growth strategy, through the Sarawak Corridor of Renewable Energy (SCORE), the Government Transformation Programme and the Economic Transformation Programme, is aimed at ensuring the state remains competitive in the global market. With SCORE, Sarawak offers a unique advantage for investors looking for investment opportunities – large land bank with purpose-built industrial infrastructure, rich natural resources, geographical proximity to supply and market, and attractive tax incentives. Its major objective is to achieve the goals of accelerating the state’s economic growth and development as well as improving the quality of life for the people of Sarawak. This is to be achieved through the efforts and cooperation between the government, private sector and the people, and by tapping on Sarawak’s abundance of hydropower, a renewable energy source. The hydropower will allow the state to attract and develop energy-intensive industries into the state. In addition, Sarawak’s strategic location as a gateway to Asia and the ASEAN countries will also increase the competitiveness of the state to attract foreign investments.

Q: What role does Ernst & Young’s China Overseas Investment Network (COIN) play for Sarawak, or Malaysia in general?

AC: Ernst & Young’s China Overseas Investment Network (COIN) was set up mainly to cater to our mainland Chinese clients. COIN works hand-in-hand with our practice in China to offer a suite of services to help Chinese companies planning to expand or invest beyond their borders. It is also a point of reference for potential clients who wish to venture into China. COIN links Ernst & Young professionals around the globe, facilitates collaboration and provides consistent and coordinated services to our clients in China with overseas investments. Our Malaysian practice has a dedicated partner working closely with our Chinese colleagues to promote the business and investment opportunities available in Malaysia.

Q: Can you briefly explain the company’s and your personal background?

AC:Ernst & Young’s roots go back to the 19th century with our founders Arthur Young and Alwin C Ernst. Each founded his own accounting firm, and through a series of alliances, the firms were able to gain quick entry into the global marketplace with offices set up around the world to serve their international clients. In 1989, the firms they started combined to establish Ernst & Young. In 2002, Arthur Andersen Malaysia merged with Ernst & Young in Malaysia. In that same year, Hanafiah, Raslan & Mohamad, established in 1964 as the first Bumiputra accounting practice in Malaysia, became a member firm of Ernst & Young. Ernst & Young was one of the first foreign audit firms to establish itself in Sarawak. The firm opened its first office in Kuching, Sarawak in 1956. The rapid economic development in Malaysia since Independence and the impetus given to industrialisation have contributed to the growth of the firm in the state and country. On a personal note, I did my studies in the UK and worked there for a number of years before returning to my hometown, Kuching, in 1994 to join Ernst & Young. I have an audit background but have predominantly been involved in the advisory services since I joined Ernst & Young. I am currently the Partner responsible for overseeing the advisory services for Sarawak and Sabah.